Episode Transcript
[00:00:00] Speaker A: Foreign.
[00:00:12] Speaker B: Welcome to our podcast on UAE tax considerations for M and A transactions. My name is Vishal Sharma and I'm a tax managing director here at Alvarez and Marcel in the uae. As the UAE shifts to a more comprehensive corporate tax regime, the implications for MA transactions are significant. To help us navigate this complex landscape, I'm joined by my two colleagues, Hashim Saleh and Gurpreet Power, who will dive into this topic and give. But before we do that, I would like to give each of them an opportunity to introduce themselves.
[00:00:44] Speaker A: Thanks, Vishal.
It's always nice to talk about tax on a Monday morning, obviously. Right.
My name is Hashim Saleh. I'm a corporate international M and a tax director at Alvarez and Marcel Middle east, but just 10 years of experience in this professional practice where most of my experience stems from the UK where I've trained with the big four with PwC before relocating back to the region just after Covid.
And I must say I relocated back in a very nice time because that's when the UAE corporate tax was being introduced and had the opportunity to actually work on the law. With my previous role within the Big Four before joining A and M, what else is there to say about me? I'm just going to keep this nice and short. Pass it on to Gurpreet.
[00:01:33] Speaker C: Thanks, Hash. Hi. So thanks Vish for the introduction. I'm an associate director at A and M and I work very closely with Vishal and Hashem. So very similar to Hash. My experience is in the uk, which is where I'm born and raised and I specialize in M and A deals, restructurers. I moved to to the region UAE Abu Dhabi first in February of last year. So I've owned. I'm still relatively new.
I did then move to Dubai because the infamous Dubai life was too hard to pass up, which is when I joined A and M in October of last year.
[00:02:12] Speaker A: Best decision, right?
[00:02:13] Speaker C: Yeah, for sure.
And yeah, like I say, I work very closely with both of you guys. I focus, you know, on UK taxes now, Middle Eastern taxes, predominantly focusing on the UAE and the new law.
I've worked across the uk. I spent a small period of time in Sydney, Australia.
I was both in both places. I was with a Big four and then yeah, like I say, I moved here early last year.
I probably say that tax profession wasn't always a dream of mine, but I think since I joined the profession, just actually I think now, bang on eight years ago, it's been really interesting. I've worked with some really interesting clients that make it very enjoyable. So whilst it's a fast paced, challenging environment, there's always something new, always a new deal or a new tax regime. So.
[00:03:11] Speaker B: Yeah, well, thank you both. But before we go into the specific UAE tax considerations, I think what would be helpful if we just set the scene into terms of where tax plays a role from an M and A perspective. You know, some of the specific work streams where you'd find tax teams kind of working on, you know, deals. So to kick us off gp, would you mind us kind of just talking about what the process is from a buy side perspective? So when you know one company is looking to acquire another company.
[00:03:40] Speaker C: Yeah, sure. So I guess the way I see it is that tax has, it has a role across most of the M and A process. Right. So I think where it really starts and where you really see tax is driven ultimately by the deal structure. So if you're looking at a deal and whether it's a share acquisition or it's a trade and asset acquisition, that's ultimately going to direct how much tax input you need, so what level of tax advisers you need, what the tax implications are going to be. So you often see that all the conversations around the different types of work streams from a tax perspective are centered around how that deal, deal is being transacted.
So I think if we take from a buyer's perspective the first thing and what everybody always thinks and they think M and A tax is due diligence, which is a, it's a, it's a massive part and it, it does make a large part of the M and A process from a tax perspective. So when you're looking at, if it's a share acquisition compared to an asset acquisition, your due diligence levels are a lot longer and they form sort of a larger part of the M and A timeline. So it's all about looking at the inheritance of the tax liabilities. Can you limit those through all the protections that we would then seek? It's looking at what historical agreements with the authorities are going to transfer and are going to be inherited, whether there's clearances in place. It's all about a health check. And so for that part of the M and A process, tax is a very critical role. I'd say you then kind of move away from a share acquisition. If you're looking at assets, your level of due diligence is slightly reduced because that, that risk of inheriting old liabilities or historical tax planning positions falls away because it ultimately sits with the seller. So asset acquisitions tend to be seen as like a clean transfer or a clean acquisition for tax purposes. And so you'd see a reduced level of kind of tax input there.
And then I think the way that tax moves throughout the M and A process, it's through the different work streams. So like I say, it's always directed through the share or asset deal structuring. But if you then look at where else does tax play a role? Well, it plays a role for the buyer, particularly in the actual acquisition and the structuring of that. So when a buyer is looking at, right, well, I want to buy a company here and it's located in this jurisdiction, but I want to integrate it with my wider group. Tax plays a really critical role. And I'm sure we'll come on to some of the items that, you know, we have to consider. But it's a, it's a large part of the acquisition structuring.
And I think for me, that's probably the more interesting part of the tax side on the M and A.
And then you've also got, you know, there's other items and other tax work streams for a buyer that are critical. So alongside the acquisition structuring, you've got the financial modeling, because if you structure it in a certain way, how am I modeling my tax cash flows going forward? And so you see that coming into play for a buyer and they start to understand, okay, well, might not be the biggest part of the commercial factors, but it plays a role in seeing where their cash flow move and how readily available they need to have cash ready to pay the authorities.
And then the other side of it is kind of the legal element. So we work very closely with the lawyers on a lot of M and A deals.
So, you know, it's the legal transactions and how the tax plays into that. How does, how does buyer get enough protection to be happy that, okay, I'm inheriting all of your issues and all of your tax history, but how am I going to be protected for the items that were not my problem before?
[00:07:16] Speaker B: Yeah.
[00:07:17] Speaker C: And so that's where we start to play a role. So I think you can see, like through the different work streams we have, you know, we play a big role as tax advisors across the whole M and A process, but it is ultimately driven by that deal structure and also the tax profile of the target that you're looking at.
[00:07:35] Speaker B: And I think that's where, I think, particularly within this region, you know, a lot of other stakeholders within the business just don't appreciate that. You know, speaking to tax advisors early on is critical because it would ultimately drive the level of our involvement and that will depend on the complexity. Like you say, if it's a share deal, an asset transaction, also different jurisdictions in which the target group may operate. So that all plays a role. So that's from a buy side perspective. So thank you very much GP that was really good.
Hopefully clear hash, I suppose, switching to you could you just spend a little bit of time just talking about from a sell side perspective. So you know, groups often still need support when they're disposing of a business. And where again does tax play a role in that?
[00:08:19] Speaker A: Oh yeah, no, definitely from a seller's perspective, obviously if we just take a step back and think about the first, the main commercial objective of the seller and that's to obviously maximize his post tax sale proceeds on exit when he wants to come and sell to whoever wants to come and buy. Right. So and to do that he would need to prepare for the sale. Now, in order to prepare for the sale, there are a couple of things from a tax perspective that sellers normally tend to do and I can simplify them in three categories just for a general overview. Number one is to make sure that they have the most optimal tax structure for the actual sale. Number two is to make sure that their historic tax liabilities, sorry, their tax liabilities generally are minimized. And number three is to make sure that their tax compliance is well maintained and is up to date. Now, when it comes to us and what we do to help the sellers prepare for the sale, we normally do something similar to what a on the buy side, what we normally do, which is a due diligence, but we call it a vendor due diligence, what that entails is it basically provides a comprehensive view of the company's tax affairs for the seller. Exactly the same process or sorry, very similar process to a diligence, but probably a bit wider scope. Maybe there are no materiality sometimes depending on the circumstances of the sellers and sometimes it's like a focused materiality or depending on who's going to be buying, what the relative stakeholders are, etc. Now obviously this vendor due diligence process also helps the buyer by, by making the sale a much more smoother transition. The reason why is because if you have a buyer coming to buy a business and let's say there's no vendor due diligence done, they're gonna have to kind of redo that whole work and it's gonna be a hassle for everyone. Sometimes, you know, especially in the uae given UAE Corporate taxes now coming in. Most of the companies, let's say I'm talking about inbounds, are not really up to date with their compliance. They're not really. They don data needed, etc. So it's going to be much, much stringent approach. However, if you have done a vendor due diligence, you could have streamlined all of that process and basically help the company understand what its historic tax liabilities are and probably do a bit of cleanup before, you know, putting the company out to sale. Maybe they want to carve out a bit of their business from a structuring perspective and have a much more smoother and cleaner approach to the sale, essentially.
[00:11:04] Speaker B: I suppose we'll talk about it and obviously in a little while. But you know, as you mentioned, businesses may not be disposing of all of their business. They may be carving out, you know, certain divisions or business lines.
[00:11:15] Speaker A: Yeah.
[00:11:15] Speaker B: And we're in 2024, so that means most businesses are now in their first tax period.
[00:11:21] Speaker A: Correct.
[00:11:21] Speaker B: So it's all about considering what the tax implications are on carving out that business.
[00:11:26] Speaker A: Yes.
[00:11:26] Speaker B: Into a new structure for readiness for sale. Now, the UAE obviously has, you know, various business restructuring reliefs, you know, transfers within qualifying groups. So there are some provisions that need to be factored in. Ultimately, if I was selling my business, I would understand. What is that tax cost?
[00:11:41] Speaker A: Yeah.
[00:11:41] Speaker B: And like you say, maximizing as much upon, you know, a sale to exit third party. Thanks. And I think the other aspect, which, particularly over the last couple of years, we've been seeing an increased amount of activity is IPOs, you know, in transactions, capital markets. So again, again, everything we're seeing going forwards now as well, and even some of our discussions with clients, you know, they're looking at certain business lines within, you know, with their organization, what they're thinking, okay, we want some kind of, you know, capital injection. One way is obviously an ipo. So again, where does tax play a role from a IPO or capital markets perspective?
[00:12:17] Speaker A: So if we look at it from the context of A M and a perspective, and let's say you have a transaction where, yes, like you said, you want to raise capital. IPOing, essentially what that would mean is that the company is effectively selling shares to the public so they can raise the capital that is needed. And obviously in a typical due diligence process where you only have, let's say, one or two private parties, one is the buyer, one is the seller, the scope of the diligence might be a little bit less as opposed to if it was a listed transaction like the one we were speaking about right now, the scope of the diligence would be much broader because a couple of reasons why is because you have much more stakeholders involved. It's not just about the buyer and the seller. You might have shareholders and obviously it's the share price is going to affect everything, the regulatory authorities, where it's being listed, et cetera, et cetera. So that's one very key element. And then the other key element around tax here is that you tend to find in IPO transactions that there's less aggressive tax planning. And again, this, this all relates to the same reason as, you know, there's a lot of stakeholders, some of the commercial objectives of one stakeholder might not align with the others. And therefore from a structuring perspective, while it would be very good for, let's say, X person, it might not be good for these bodies. Right. So that's from like a typical structuring perspective.
And then other than that, from a listed company perspective as well, compliance is a huge element. Right. So because it's listed, it has its ethos and you know, the company's governance, etc. Etc. And therefore we would need to make sure that, you know, when a tax needs to be very, very well maintained, compliance up to date, not liabilities, all clearances are, you know, gotten by the authorities. And. Yeah, okay.
[00:14:09] Speaker B: I mean, one of the things is, like you said, I think it's ensuring that, you know, the governance is up to speed. Yeah, the structure is one which is, you know, one that's tax efficient, but still one that is robust and is also kind of appealable to different investor profiles in terms of that come into the structure. Thanks a lot for that. The other point is, and again we mentioned, you know, there's various aspects of where tax plays a role from A M and A, you know, deal process.
Obviously with the UAE corporate tax being introduced recently, when we look at diligence, I mean, I've been in the region now for the last 10 years and you know, often when we're doing transactions, a lot of stakeholders say there's no tax in the uae. Why would you, you know, want to kind of consider that perspective? Some of that is, you know, relatively true because, you know, there was been no direct tax. And so the most of the focus has been, particularly in the last five years on VAT as part of a transaction. So you do VAT diligence, I think now going forwards, I mean, with corporate tax. And if you focus, if you specifically focus on just the diligent side of things, you know, we're still getting that view from a lot of, you know, stakeholders.
[00:15:15] Speaker A: Yeah.
[00:15:15] Speaker B: Whether that's kind of investment banks, whether that's actually buyers themselves or other advisors, etc. And you know, they still take the view that there's nothing to think about in the UAE because. Particularly when it comes to diligence. Because we're looking at historical periods.
[00:15:29] Speaker A: Correct.
[00:15:30] Speaker B: I mean, how true is that?
[00:15:32] Speaker A: Not true.
Not sure.
[00:15:34] Speaker C: Yeah, I agree. I mean, it is a perception and rightly so. I mean, people are right. There was, you know, even if we're talking pre VAT as well, there was very limited taxes here.
So it is a region seen along with a lot of the other Middle Eastern regions, particularly GCC areas that, you know, oh, what taxes do we need to think about now? I think that's starting to change. I think the world is sort of starting to realize, okay, actually the impact of the new UAE CT legislation is, is coming into force and it is, it is impacting deals.
I think stakeholders within the region are, you know, engaging in those conversations and that previous perception of there's nothing to think about is starting to fall away. But it's about educating all those different stakeholders, be it, you know, advisors, lawyers, investment banks, clients themselves.
But I think the misconception does come from. If we take out vat. Yeah, everybody's clear, VAT is there and it's a standard. Clients are very aware that from a due diligence perspective, VAT does need to be looked at. But I think where the kind of disconnect is all it's the UA CT is a new law, so what could I possibly be inheriting? But if you think about sort of timeline of where we are, there are multiple companies now in the region that may be coming to the end of their actual first taxable period.
Aside from that, every company is requiring to register. So if we're looking just at a due diligence of a compliance matters, there is a bit of work to do there. It's not extensive, but there is. But I think for me the biggest sort of considerations now that we have, the UACT law and what people forget is the tax profile of the targets that you're looking at or if you're a sales side, the company that you're selling is going to impact all of the future.
[00:17:30] Speaker B: Yeah.
[00:17:31] Speaker C: So it's going to impact your structuring, it's going to impact your financial modeling and people sort of almost forget that. So doing things like impact assessments and the targets or requesting as part of the due diligence, you know, has that target produced an impact assessment? Because buyers need to know, well, how are you affecting my cash flows? What rates am I forecasting? When am I expecting to pay my first amount of corporation tax? Am I expecting to pay any, Do I benefit from any reliefs? Am I located in a mainland? Am I located in the free zone?
[00:18:05] Speaker A: Do I have a team?
[00:18:06] Speaker C: Yeah, yeah, correct. And that's a good point. So do I have a team? So I think part of the thing people forget when you're carving out a target from a wider group is that is that target dependent on centralized functions and actually there's a cost involved in that for a buyer because if that's the case, the buyer needs to factor in, well, do I need a new tax department? Do I need a new finance department? How's that impacting my costs? And also how's that then affecting the cash flows and the P and L and what's my tax on all of that? So I think there's a lot of factors and it's not just about the due diligence, it's about the wider elements of the structure structuring and the post integration that I think people are sort of missing or forgetting to think about when they're thinking about you.
[00:18:48] Speaker B: Well, you mentioned obviously the carve out, so that's a clear one. If you're carving out any businesses in 24, there's going to be, you know, taxes consideration. The other thing is obviously have businesses, you know, forecasted the, the right correct percentage within their current year of provisions for the account. So, you know, particularly as you look at the PNL for year to date 24, does it include a provision or not?
[00:19:13] Speaker C: Yeah.
[00:19:13] Speaker B: Should it?
[00:19:13] Speaker C: You know, it should.
[00:19:15] Speaker B: Well, yeah, I mean, that's the thing I think.
And again, people have this misconception that the UA CT law is also quite straightforward. I mean, it is in some respects. I mean, I personally think it's, you know, a good regime and it's still one that is attractive, you know, so, so I think the UAE government have found a good balance in terms of positioning the UAE corporate tax law. But again, I think, you know, the nuance between free zones and mainland and what that means from a tax perspective I don't think is fully understood.
[00:19:48] Speaker A: No, it's not. People think, I mean, some businesses still think that because they're in the free zone, they don't pay anything and they don't have to file or whatnot. But there is a very big misconception.
[00:19:59] Speaker B: Here and that's Where I think, you know, again, when you look at diligence, I think now it's very much as part of that initial phase. Yes. You may not be diligencing historical tax returns, etcetera, but it's very much diligent saying, have we got the tax profile right? And like I say, does that factor them into future profiles? I think the other thing is, you know, do you feel that there are areas that, again, are kind of being overlooked? I mean, there's certain areas like, you know, Pillar two you hear about.
[00:20:30] Speaker A: Yeah.
[00:20:31] Speaker B: So what is Pillar two? Can you kind of talk about also how that impacts from a deal process now?
[00:20:36] Speaker A: Of course.
So I'm going to keep this very simple. Pillar two, essentially, it's, it's a new, well, relatively new international tax development by the OECD, which was announced, I believe it was back in July 2021. And effectively what it means is if you have a company that's operating in more than one jurisdiction with a certain revenue threshold and other conditions, it's 750 million euros, then you would be subject to an effective tax rate of 15% on a jurisdictional basis where you operate. Now, obviously, this definitely shook the world. Right? And we're seeing it, we're seeing many updates on a regular. Even only yesterday, Bahrain have also announced the Pillar 2 Implementation Guidance Guidelines. And, and basically, from an M and A perspective, it's being a little bit overlooked and we've had some experiences of this in the past. Let me give you a small example. Let's say you have a company that, a buyer, a company, right, that is not crossing the threshold yet. But then when they come to acquire the target, they all of a sudden became more than the 750 million threshold and then the pillar 2 implications started to affect them. So obviously, from that perspective, this could be like, you really need a good team to be on the, on that transaction just so they could, you know, make sure that they're factoring in all of these international developments. And the UAE in particular have, are also going to be introducing Pillar two provisions. And that's also been seen in the law just about, I believe it was six, seven months ago and they're working on the legislation now. So it's inevitable. It's going to, it's going to happen. It's happening in the uae and yeah, they just, they should be ready. And then from a diligence perspective, from a structuring perspective, especially from if you have multiple free zones, where, let's say you have a multinational company, for example, who has Multiple free zones. Multiple free zone companies.
Yes. It's all well and nice that they can access the 0% right now, but then what does that mean when the pillar two provisions come in? Right. And then they, they have to be bound to an effective tax rate of 15%.
[00:22:50] Speaker C: Yeah, yeah, I think so. Just to jump in there, I think there's also a really good point to that which is the Pillar 2 regime is really driving a lot of structuring for multinational groups. Because there are, you know, especially with the free zones here in the uae, it is throwing up the question of well, I might have benefit today, but.
[00:23:11] Speaker A: Exactly.
[00:23:11] Speaker C: If UAE are implementing Pillar 2, then ultimately don't I have to pay the top up tax?
And so I think there's a massive shift now to kind of accepting that that's happening. And okay, well how do we deal with that and how do we structure correctly to still be compliant but also get the best out of the situation for us and for the wider group? So I think there's a large focus now because of pillar two, which is moving towards are we structuring correctly and is there a better way to structure to kind of, of future proof the group?
[00:23:47] Speaker B: Yeah, I think just in terms of going forwards, you know, I think what's going to increasingly happen as we kind of go into, you know, the next four, five years ahead, you know, we're have to do some pillar two diligence, you know, particular on those large organizations. Because Pillar 2 also has a number of compliance obligations.
[00:24:05] Speaker C: Yes.
[00:24:06] Speaker B: And it's very complex, it's really data driven. So that's going to, you know, increase the amount of tax involvement on transactions where you've got, you know, multinational operations. I suppose the other area which again particularly from my time and I suppose both of your times back in, you know, in the uk, you know, transfer pricing also was a big scope area of focus as part of, you know, transactions. Again both from a diligence perspective and then a structuring perspective because post deal you're looking at, you know, getting efficiencies within the group, some synergies that may be kind of adopted or IP that's being acquired here within the region, particularly during my time here, Transfer pricing is very much just checking are there any related party transactions, are they on an arm's length basis and that's it.
[00:24:52] Speaker A: Right, yeah.
[00:24:53] Speaker B: Again now with the Saudis introducing specific transfer pricing regulations for Zakat purposes, the UAE introducing transfer pricing legislation in terms of domestically, how much kind of focus do you see that kind of creeping into transactions These days I would say.
[00:25:17] Speaker C: I would say I see that focus shifting. So I mean on transactions we're working on daily, it's becoming a focus point. You know, clients are very much aware of it now. It's this topic of conversation that previously probably wasn't really talked about as much in the UAE specifically given there was no law.
But it's a topic that clients I think have actually become very much aware of and are very conscious of making sure that intercompany and cross border transactions are all priced correctly and that those costs that historically were just being incurred in this company and this related company and there was kind of no monitoring of that, that recharge of cost is really being picked up. So I think the focus is changing and I think for the right reasons, which is it does, does harmonize particularly cross border transactions and even domestically now because you've got domestic rules for transfer pricing, people are beginning to think, okay, well I can't just get away with selling something at a discount because the tax man's going to come and get me.
So I think that shift in mindset around transfer pricing and understanding that it impacts more than just tax, but it impacts your commercials, I think people are wising up to that.
[00:26:35] Speaker A: That's the biggest point. Right. It's impacting the, the cash flows.
[00:26:39] Speaker C: Correct.
[00:26:39] Speaker A: Right. So previously in the past, you know, we've seen situations where let's say you have an intercompany debt at 0% interest. Well, not anymore. You can't do that. Right. And obviously now you don't just have the tax advisors on the deal questioning it. You've got also the shareholders. Right. Being like what's going to happen to.
[00:26:56] Speaker B: My recovery on the these transactions and transfer pricing? Obviously it kind of falls into the direct tax regime part.
[00:27:04] Speaker C: Yeah.
[00:27:04] Speaker B: But there are knock on effects. So you know, typically you deductibility issues in terms of, you know, like you said about debt and interest and you have thin capitalization requirements also withholding tax. So you know, withholding tax on implications. So you may be having to impute a charge cross border which is going to crystallize a tax charge that could in, in some respects not make it efficient. It could actually make it, you know, more adverse. So I think there's definitely more considerations to be had when it comes to, you know, transfer pricing matters and how that has a knock on effect. But again it's all within the deal process. So we have seen a fundamental shift away from being a low or no tax regime to what is now a comprehensive regime across different facets and within tax, you know, it. I may. A corporate, international and MA tax petition. I'm not vat. I'm not, you know, transfer pricing. So often I think a lot of clients also don't understand that when we talk about tax, it's not one person or one team.
[00:28:06] Speaker A: Correct.
[00:28:06] Speaker B: We have to involve effectively a direct tax team, an indirect tax team, a transfer pricing team. There's sometimes, you know, pillar 2x specialists, which increases the amount of involvement and therefore increases. Increases the amount of time and they will ultimately cost.
So again, additional consideration.
[00:28:23] Speaker C: So not to be forgot, there's a lot to consider, I think. Yeah, for sure.
[00:28:29] Speaker B: And again, I suppose the other area which I'm seeing greater impetus in is, particularly within this region, is the introduction of, you know, WNI within transactions here within the Middle East.
[00:28:41] Speaker A: Yeah.
[00:28:42] Speaker B: Can someone just briefly talk about what WI is?
[00:28:45] Speaker A: Yeah, sure. Do you want me to take this? Okay, so W9 is short for warranties and indemnities. So effectively it's a insurance policy, just like any other insurance policy that effectively protects the parties involved in a certain transaction.
Now, this has been relatively increasing in the Middle east. So when I came here about three years ago, it was. I've only seen it on one deal. But usually the way it works is it's. It's usually in favor of the buyer because the sellers are the ones who are putting their warranties and representations and indemnities on a contract for the particular transaction. But now we're seeing it more and more on some of the deals I've been working on, and it's affecting the whole life cycle of the tax diligence process. Because in the past, when you didn't have W and I insurance, you would typically have, let's say, you could get away with a red flags report, right? Like a specific tailored scope of diligence. Whereas now, if you have WI insurance involved, you've got a third party here, which is the insurance company.
[00:29:51] Speaker C: Right.
[00:29:52] Speaker A: And normally what they would require is for you to have a more comprehensive set of diligence performed, making sure you have the right teams on the team. Right. Doing the diligence and covering all aspects of it. Now, what this policy actually covers, it's kind of tricky. We call it, we used to call it in the uk known unknown risks or unknown known risks.
[00:30:13] Speaker C: Right.
[00:30:14] Speaker A: And essentially any findings from the due diligence or anything that's written in the SBA is usually not covered under that policy.
And because it's a. It's a known risk. Right. We've identified it, it's been quantified, etc. However, on a normal W and I policy, it would cover any other risks that were not anticipated, obviously to a certain materiality threshold that's been agreed by the buyer, the seller and the insurance broker and also some, some other conditions that, that were prescribed between the buyer and seller at the time of negotiating the transaction.
[00:30:49] Speaker B: Yeah, I think it's like you say, it's an insurance policy, right? Exactly. As part of a transaction, if I'm buying a company and the seller is unwilling to provide me any sort of protection for historical tax risks, I'd go and get an insurance policy or the seller would get an insurance. So I think it's both parties can change that process. And should a claim arise, instead of me going after the seller and saying, hey, can you give me some money back, you know, it's me going to the insurance policy and adjusting a claim. Yeah, I think like you say, I think the fundamental shift certainly from my discussions with a number of, of brokers and underwriters, is that underwriters are getting more comfortable with the tax regimes in terms of the process because the taxing regimes across the region have really spent a lot of time developing their frameworks. They're more consistent in terms of when it comes to an appeal process or raising assessments and therefore it gives insurers comfortable comfort in terms of, of what risks they're willing to take on as a, as a policy provider. So with the UAE corporate tax again being introduced, you know, being based on, you know, some well established laws, typically, you know, of course you can see some elements of UK law in the UAE CT law, you can see some elements of the Dutch law. I can see insurers being more and more willing to potentially ensure deals here within, within the region.
[00:32:13] Speaker C: Yeah, I think as well, just to add, if we're going back to sort of how it impacts tax, the due diligence, scoping or the involvement of tax advisers, I think, you know, we were talking about earlier, the transfer pricing is leading to additional items. You know, pillar two is coming in. It means more work for tax advisors or throughout the M and A process, more consideration to tax. I think the W and I process is the same. So it involves additional work from tax advisers to actually make sure the scope is correct and it's sufficient enough for a WI insurer and the brokers to be comfortable with what's been due diligence and therefore to ensure the right elements.
And then it's also the process of that W and I. So it's, you know, aiding sellers and buyers through the process, helping them make sure that they've got the right items covered. And it's also the interactions that we then have with the underwriters to talk through the due diligence finding. So it's an additional layer of kind of work that's involved for tax, taxes and it all forms part of that always condensed M and A timeline. So it's another factor for buyers and sellers to think about how it impacts and at what point of the timeline is it going to impact and do we have enough time for that?
[00:33:27] Speaker B: Yeah, it's a very valid point because I think what we said at the start was the first time tax gets involved on an M and a transaction should be, you know, what is the deal parameter? And I think as part of that question is, you know, we should ask, ask, you know, clients in terms of are you considering any W9 insurance? Because if you are, then we have to think about how we approach the scope of work. I mean typically, like say if you're going, if, if typically from a buyer's perspective they want to limit the amount of cost they incur in the deal process in the, in the event the deal doesn't go ahead.
[00:34:00] Speaker C: Right.
[00:34:00] Speaker B: So you end up spending X amount of money on, you know, whether it's tax advisors or financial advisors or legal advisors, there's a risk, risk that something may come out of the due diligence process or the negotiations, which means that the deal is just not a viable option. So I think it's balancing that and I think it's very much then thinking about, you know, the deal process, the timeline and how tax plays a part. But it's all valid points we need to kind of touch upon at the very start of a transaction.
So just for some light hearted questions then in terms of, of to both of you, what's the most interesting part of a transaction that you've been working on recently?
Obviously maintaining client confidentiality on some of these transactions. But be helpful to say what, what's kind of some of the interesting elements of a deal that you've worked on recently?
[00:34:49] Speaker C: I think. Should I go first?
I think for me, I think the interesting parts are actually the parts that are still uncertain in the law and how we deal with those. So I think for me it's probably the structuring element. So like I said earlier, that's sort of where my interest is. I prefer the restructures and the acquisition structuring work, but I think it's dealing with the Lack of precedence, explaining that to clients and then coming up with a solution or something that is, you know, informed by other regions to give us an idea of, okay, well, our law kind of has these basic principles, but if we think about international tax law, the harmonization, and that's what the UAE is trying to achieve at the moment, can we pull a position and can we sort of leverage other jurisdictions to say, okay, this may work now, it's a risk. And it's navigating through those conversations, I think for me is what I found most kind of interesting on recent transactions is bridging the gaps in the law to the international tax regimes and then explaining that to a client and coming up with a position that's safe enough and prudent, but also efficient and a little bit. It could be contentious, but also it's. It's an informed, contentious position.
[00:36:14] Speaker A: Yeah, yeah, yeah. I was literally gonna say structuring, too. But the thing is, what's. What's. So what's so nice about going into deals now is that we. We are at the forefront of the table now, and clients are slowly realizing this. Right. So one of the main key topics at the beginning of any transaction is structuring. And we've seen this on a couple of deals, right. We've been working on. Now, what's also nice is I'm just gonna kind of leverage on you because I loved it in the last transaction. Right. We had.
We don't have enough precedent. Well, we don't have any precedent. Sorry. Right. Because the law is new. There are certain positions that the client wants at, let's say, the buy the buyer wants, and certain positions that the seller wants as well. And it's like going into these negotiations at the top of the table with them, with the actual buyer, the actual sellers.
[00:37:07] Speaker B: Right.
[00:37:07] Speaker A: The actual shareholders negotiating these terms, finding a solution and taking the law and translating it in English to them and showing them exactly how it may or may not pan out, out. And then the other interesting bit about that is pillar two. You know, as. As much as I would love to talk about it on a Monday morning, but like, we're seeing transactions now where, like I mentioned before, a buyer is. Isn't in scope of pillar two. He acquires someone, and then they all of a sudden become in school. So some of the other negotiations that he may have thought could be good between him and the seller. Right. May not be really good if they want to structure something in a different manner. So that's the most interesting.
[00:37:52] Speaker B: It's particularly relevant in A kind of high volume, low margin business because every, every percentage kind of counts.
[00:37:59] Speaker A: Exactly.
[00:37:59] Speaker B: That's where you know, some of the deal process could actually just fall off and you know, due to tax, I mean tax typically we always like to think.
[00:38:09] Speaker C: We are the most important structuring is.
[00:38:13] Speaker A: Right. Especially now.
[00:38:15] Speaker C: Yeah, I mean some of the transactions we've done, some of the structuring has been leading some of the commercial negotiations. Now that's in the context of a joint venture. And so it becomes more relevant because you're trying to appease two parties and they're working together to achieve something that's mutually beneficial. But when you have one party that's got an international tax group that's sat like this and structured like this and you've got another party coming to the table that maybe doesn't have multinational operations or structures and they're just appeal fully UAE based group throwing in pillar 2 and all of those cross border transactions, they're like oh well actually how can we structure this so that we can minimize because of my taxes going from this to sort of this. And I want to, you know, minimize that. So I think that's, that's one of the really good ones we've had recently is joint ventures. And that interaction between the two parties is, is really interesting.
[00:39:09] Speaker B: I think the bit from, particularly from my perspective is also on the, you know, know, the whole understanding the tax profile because I think there's a couple of transactions we've come across recently and they've said, oh, don't worry about it, you know, we're subject to zero percent, we're in the free zone. And when you dig, you know, deeper and deeper as part of the due diligence process and understand what their operating model is, where their customers are based, you know, they may be transacting with other free zone persons and therefore being exempt. But have they gone and checked actually is the recipient actually the beneficial owner of that service or that good or they passing it through? And that's, you know, again, some of these nuances which we're finding I think is really, you know, interesting and it's kind of, you know, putting up the fact that we just can't assume things. You have to kind of go into that extra level.
[00:39:55] Speaker C: And substance on the free zones is one we keep coming across is I think people are forgetting that the law has now released guidance. And that guidance says there needs to be a good amount of substance and it's not just having an office anymore.
[00:40:07] Speaker B: Well, it's not black and white, right yeah, yeah.
[00:40:09] Speaker C: Again, yeah.
But, yeah.
[00:40:13] Speaker B: And it's open to interpretation.
[00:40:14] Speaker C: Exactly.
[00:40:15] Speaker B: Yeah. Great. I suppose when a deal does get done, then. So how do you both celebrate a long sleep?
[00:40:24] Speaker C: A lot of the times deals run long and over a weekend to get things signed.
Yeah. Sleep recovering, I think.
I think, yeah. I mean, you can probably speak a little bit more having completed a few more than I have, but.
And how. She mentioned this earlier, but it's A and M values.
One of the values is fun. So when we do complete, I mean, we get together and we're like, oh, completion, lunch. Or, you know, we interact with all the other service lines that we've worked with across A and M, whilst we.
[00:41:00] Speaker A: Still have a 6pm call with the U.S. trust.
[00:41:02] Speaker C: Yeah.
So whilst one might be completed, we're still in the middle bits of multiple others.
So it's always exciting. But I do think we do take the time as a team to a, appreciate each other and all the work that went into getting something over the line and we take that time and we go for lunches or we, you know, we do something social. But a lot of the time it's jumping into the next one.
[00:41:25] Speaker B: I think it takes. I think it takes a certain type of person in M and A, you know, because it's often, you know, it's peaks and troughs, so it's not always, you know, correct full on, I'm foot to the pedal, etc. But it's. It's very much.
[00:41:37] Speaker A: It's like seasonal, right?
[00:41:39] Speaker B: Seasonal. Well, I wouldn't say it's seasonal because you just don't know when a deal is going to kind of come around the corner. But I think what you say is very up and down.
Although in, I'd say probably of the more recent years, particularly in the Middle east, deal volumes are high. You know, the economy is strong, there's a lot of, you know, surplus cash for deployment. So it seems like more on than off. And I think that's where, you know, again, it takes that different type of person to work in M and A because it's very much long hours, it's kind of jumping on calls last minute, it's having to work across time zones, like you mentioned. But it's important to kind of take that time.
[00:42:16] Speaker A: Yeah.
[00:42:17] Speaker B: And then celebrate. Right. Because I think that's the. That's why we do what we do.
I think the other. I suppose that leads me on to my next question, which is really, what do you love about. About your job and what do you hate? So I'm Gonna leave what you love.
[00:42:31] Speaker A: About your job for you. That's okay.
So to be honest, you know, like we discussed before, right, in the context of an M and A transaction, you work, you work with multiple teams where it being with, you've got the, the main M and A team, then you've got the transfer pricing folks, indirect taxes folks, pillar two sometimes, etc. And just coming together and collaborating together and, you know, helping the client out is, you know, really satisfying, especially in terms of when, you know, laws are new and new implementation decisions have been happening, etc. So that's actually really nice. And then once you get client feedback as well, you know, resonating, all of that, that gives you a much better boost. So that's the nice thing about the job.
The, the unpleasant thing about the job is, like you said, you know, the, the hours obviously, and anything could happen, you know, last minute, and you just have to kind of drop everything and tend to it, you know, Jump. Jump onto it. Yeah, exactly. Whereas, I don't know, like you said, it takes a certain type of person to be in this, in this space because it could get to people. You know, like, I've realized this, I've seen this in the past, especially in the uk. Okay.
But thankfully now we're good. You know, we didn't have any, any breakdowns or anything like that.
[00:43:49] Speaker C: Not yet.
[00:43:51] Speaker A: You know, but again, it's. You have to be realistic with yourself and the client as well and set realistic expectations and try to manage all stakeholders as, as you, as you potentially can, basically.
[00:44:04] Speaker B: How about you, jp?
[00:44:05] Speaker C: Yeah, I think I'd echo what Harsh was saying is the best part. I think we sometimes forget and there's a misconception. We are a people profession. We work with people every single day. It's all about communication. It's all about collaborating to achieve the best position, whether it's for your client or for your internal teams or whoever it may be. And for me, that's the best part because I like to think I'm a people person and I really enjoy that interaction, like going in and not just being stuck at a desk, because that's the misconception that we all sit there and we're on spreadsheets and we write reports and that's all we kind of do. But actually most of our day is spent in meetings and speaking to people and coming up with, with solutions. So I think that for me is the best part because I think it suits my personality, it's what I enjoy. But ultimately it's, it's People collaboration.
The worst.
Yeah. I think for me, the unpleasant parts of it, and it's. It's part and parcel of M and A and how restructures and transactions work is that sometimes they fall through. And so sometimes for commercial reasons, for regulatory reasons, political, whatever it might be, a deal can fall through and you never to complete.
[00:45:17] Speaker B: Yeah.
[00:45:17] Speaker C: And I think actually that's the most unpleasant part because you work so hard and you work with all these different people and there's so many stakeholders invested in things, and then it dies. And we literally call it a dying deal.
So I think that's actually the most unpleasant part because it just feels like it's not that your efforts have gone to waste, but it's also you didn't get to see the end product and you didn't get to see, you know, you'll buy a flourish after integrating the company. It's just purchased and you. You lose that element. Yeah.
[00:45:47] Speaker B: That's good. I suppose. Last question then, on the personal side of things. So if you weren't in tax, what would you do?
[00:45:54] Speaker C: Oh.
[00:45:56] Speaker A: Oh, God. If I weren't in tax.
It's a good question.
I would probably.
So I. I'm a. Okay. I know it's a very big hobby of mine. Like, I love going to the gym and working out, stuff like that. That. So I was thinking about personal trainer.
[00:46:17] Speaker C: Yeah.
[00:46:18] Speaker B: Potentially, you know, too many of those in the uae.
[00:46:20] Speaker A: Too many. Way too many right now. And I'll probably open a gym and just, you know, just do what I need to do. I never really thought about it.
[00:46:30] Speaker B: Because you love to eat so much.
[00:46:32] Speaker A: No, it just takes up so much of your time. Right. So you don't even have time to think about what else you would be doing but to be, you know. But if we're talking seriousness, I probably do something that I really like, but try to open a business with it, you know, right now it's a bit too late just because. Right. And I love my job, by the way.
[00:46:50] Speaker B: Yeah.
[00:46:50] Speaker C: It's never too late.
I don't know. It's hard. I think I'd be traveling the world on a yacht, I think. Not sure how I paid for it to be retired. Yeah. No, I'm joking.
I'm not sure. I think it's a hard one. I think similar to hash, I'd have to just think about what I. I really enjoy. Yeah. Which I've never really had to think about. I do enjoy what we do. I mean, M and A. I'm liking.
[00:47:15] Speaker B: These answers because it seems like you all love. Enjoy tax.
[00:47:18] Speaker A: Yeah.
[00:47:19] Speaker B: You know, you're happy doing what you do.
[00:47:20] Speaker A: What would you do?
[00:47:22] Speaker B: You know, I love cars, so I'd be.
[00:47:26] Speaker C: I think you could be a salesman, actually.
[00:47:28] Speaker A: You think so?
[00:47:29] Speaker C: Yeah, if it wasn't a gym, I think. Salesman.
[00:47:32] Speaker A: Let's see. What? Well, clearly I failed.
[00:47:37] Speaker B: Well, look, thanks to both of you for your valuable insights today. It's been really helpful. I think, like, everyone will acknowledge that, you know, with, like I say, it's just tax. The global landscape around tax is changing at such a fast pace and I do think, you know, with the introduction of UAE corporate tax here, it's just basically changed in terms of the. The dynamics of where tax gets involved from a deal process. So all I would say to any clients out there is make sure that you think of us early on in the process and not at the end. But if anyone has any questions or needs any further support, then please do not hesitate to get in contact with us. Thank you guys.
[00:48:16] Speaker C: Thanks. Thanks, Ash.
